Seed Space, a venture capital firm focused on early stage fintech investments, welcomed the Government’s Budget commitment to doing more to encourage venture capital investment, but reiterated Australia has much to do to match global tech hubs.
“Senator Bragg has said many times he wants Australia to be a leader in this space, but we remain laggards in investor and founder incentives; in direct investment; and in creating a favourable environment for fintech,” Founder and Managing Partner Dirk Steller said. “Until these things are addressed, competing with other hubs is a mere pipe dream.”
Steller said the key changes needed were three-fold:
1. Incentives for investors and startups.
Tax concessions for early-stage investors will need to at least double to put Australia on an equal footing with international technology hubs. While the modifications announced to employee share scheme legislation are a good start, Australia is still well behind its peers in supporting startup founders from a holistic tax perspective.
“Our international competitors all have strong, stable tax supports in place that make them attractive to international investors. Australia attracts international investment in spite of its tax arrangements – not because of them. Removing those tax barriers could very quickly make Australia a much more serious target for investors,” Mr Steller said
2. Direct investment by Government
The Future Fund should be mandated to direct a portion of its investment into Australia startups.
“What is missing in Australia is a directive from Government for our sovereign wealth fund – The Future Fund – to deploy some of its capital to funds that invest in Australian companies,” Mr Steller said. “All the other major fintech hubs in the world direct their sovereign wealth vehicles to support the fintech ecosystems in their own countries. It’s deplorable to me that The Future Fund deploys capital to 14 funds, but all of them are international, and none of them invest in Australian early-stage fintech. If even half of 1% was redirected to Australia, that would make a massive difference.”
3. Allowing investment into fintech
Today, ESVCLP and VCLP programs are effectively banned from investing into companies that have anything to do with financial services. This is an unintended consequence of previous legislation and must be addressed urgently if Australian fintech is to flourish to its full potential.
The last word
Seed Space Partner, Cathryn Lyall, who recently returned to Australia after working in financial services and fintech in London for 18 years, said Australia should be benchmarking far more rigorously if it hopes to stand alongside places like London, Singapore or the EU.
“A word we don’t hear with regard to fintech is harmonisation, but we should be talking about it constantly,” she said. “Harmonisation means aligning Australia’s rules with those of the hubs with which we want to compete. International investors, faced with the choice between deploying capital in Australia or somewhere else, are going to choose the country that has the best incentives and the most supportive ecosystem. By harmonising Australia’s incentives and ecosystem with the best in the world, we can begin to actually attract real, global talent, startups and investors to our shores. But without harmonisation, that will never happen.”
Founded in 2018, Seed Space and its related entities have invested in 25 Australian fintech startups since inception, and is delivering a gross IRR of more than 40% per year. Through its Early Stage Venture Capital Limited Partnership (ESVCLP) fund, Seed Space will invest up to $50 million in Australia over the next three years.
